Somalia: The Case for Puntland Monetary Authority

Consumers in Puntland are experiencing economic hardship. Many businesses are not accepting the Somali Shilling from customers. Almost all business transactions are consummated in a mobile payment system based on US Dollars. When the business community in Puntland resort to demonitisation to look after its interests, it is time to ask who is politically in charge in Puntland? Consumers in Puntland complain of the high exchange rate quoted on the spot by traders who, to avoid being accused of refusing to accept the Somali Shilling, raise the price of goods on the basis of a high exchange rate as a buffer against illegal demonitisation.

When the business community in Puntland resort to demonitisation to look after its interests, it is time to ask who is politically in charge in Puntland? Consumers in Puntland complain of the high exchange rate quoted on the spot by traders who, to avoid being accused of refusing to accept the Somali Shilling, raise the price of goods on the basis of a high exchange rate as a buffer against illegal demonitisation.

Somalis dealt with the problem of parallel authorities printing Somali Shilling. During 1991 the USC-installed administration was able to transfer people’s savings in Qoryooley branch of the former Somali Commercial and Savings Bank. The administration managed to deploy the last instalment of Somali Shilling ordered by the ousted government before rebels had overthrown it in 1991. The former interim president, Ali Mahdi Mohamed, controversially printed Somali Shilling known as N. It was not a legal tender in South Mogadishu then under General Aideed. Puntland, unlike Somaliland, uses the Somali Shilling for political reasons but is unable to protect businesses and consumers from counterfeit Somali Shilling flooding markets.

Puntland government realised that it cannot force business owners to accept the Somali Shilling when there is no way to spot counterfeit banknotes printed in other parts of Somalia. The demonetisation problem reached Lasanod, under the Somalilandadministration, where people had not been able to buy Eid clothes for their children. Lasanod has a better chance to deal with demonetisation affecting Puntland. If the problem persists people in Lasanod may begin to use the SomalilandShilling or embrace fully fledged dollarisation via Sahal and Saadmobile money payment systems. InPuntland the government can no longer address the problems through meetings with business community or edicts. It should take a bold step to set up monetary authority to
1- print new Somali Shilling to be used only in Puntland. The new banknotes must have a distinctive mark.
2- To persuade mobile money payment networks to use the Puntland Somali Shilling for transactions. This requires creation of a monetary policy committee made up of members from Puntland government and the business community or Puntland Chamber of Commerce. The committee should be tasked to ensure that the money printing initiative is a transparent scheme. Puntland could also learn from its 1990s money printing experience.

The initiative to print PuntlandSomali Shillings will necessitate the withdrawal of the non-counterfeit Somali Shillings currently in circulation in Puntland. It will be not be an easy task to withdraw the Somali Shilling but failure to do so can have a severe impact on Puntland economy.
Those measures will be temporary until the Somali Central Bank acquires the institutional capacity to end the private money supply that makes mobile money operators more influential than the Central Bank in Mogadishu. Mobile money operators have created financial inclusion in an unregulated and hard-to-to regulate telecom industry in Somalia.

There is perception that Punlandgovernment already prints Somali Shilling locally. The current administration would do well to confirm or deny this allegation. Adopting a monetary policy will not be a political statement against the federal government. Puntlandinstitutions are older and more robust than institutions of the federal government of Somalia. The primary responsibility for protecting Puntland economy from collapse lies not with the federal government; it lies with the government and parliament of Puntland. With a former economics professor at the helm, Puntlandmust rise to the occasion to devise a novel monetary policy. Illegal demonitisation is far more threatening to Puntland security and economy than religious extremism is.